BRIC Investing: Russia

Goldman Sachs coined the acronym BRIC in 2003, in a global economics presentation designed to introduce their clients to the countries they believed to be the four dominant emerging markets of the future. The list includes Brazil, Russia, India, and China. Because of their vast populations, highly competitive service-related industries and stockpiles of natural resources each is poised for significant GDP growth for decades to come. However, these economies face great challenges including political unrest, international sanctions and volatile currencies that must be weighed into the equation before you decide to invest. In this series, we will address the hurdles each emerging market faces and will zero in on the individual sectors that are poised for growth.

We looked at Brazil in our first installment of BRIC investing, and this time we'll be profiling Russia, which is not only a powerful emerging market, but also the largest country in the world. Russia's land is rich in commodities and its economy relies heavily on exports, especially of oil and natural gas. Though the price of commodities has dropped recently, there are no signs that the bull market in energy and metals is over. However, this has contributed to a recent dramatic decline in their stock market, known as the Russian Trading System (RTS).

Russia has maintained a near double-digit economic growth rate over the past eight years as its population has become more consumer-friendly. However, with the recent conflict in Georgia and the hot-tempered antics of Prime Minister Putin, the political structure and national currency (the ruble) are unstable at best. These events have factored into a further decline of the RTS, and now may be a buying opportunity — if you can stomach the risks.

One of the barriers that keeps foreign investors from Russia, as in any of the BRIC nations, is that few of their companies are listed on the NYSE. There are two ways to jump this hurdle: One is by purchasing American Depository Receipts (ADRs), certificates that represent the ownership of shares, and the second is by investing in Exchange Traded Funds (ETFs). We'll discuss a few companies that fall into this category as we outline the three booming sectors in the Russian economy: commodities, telecommunications and consumer goods.

Commodities

The oil and mining industry make up a significant percentage of the overall GDP in Russia, and the government has a considerable interest in maintaining this trade. Lukoil is the largest non-state controlled oil company in Russia. Its vast reserves are comparable to the other major energy companies including Exxon Mobil and BP. The company also sells gasoline and owns fueling stations in over a dozen countries, including the U.S. It has proved to be relatively stable and has agreed to a strategic partnership with ConocoPhillips to develop more oil fields as well as with Italian refiner ERG to expand its refinery business outside of Russia. Lukoil (LUKOY) is listed on the NASDAQ as an ADR and can be bought over-the-counter.

Telecommunications

The integration of a communication infrastructure that can reach the masses is vital to the growth of any nation and has been a common theme within BRIC. Vimpel-Communications (VIP) is a telecommunications company that provides broadband and wireless data services. Like other wireless carriers, VIP also sells handsets and accessories along with their services, boosting their bottom line. It has increased sales year-over-year and continues to maintain valuable returning customers. The company has also recently acquired Golden Telecom, a rival operator, amplifying its overall market share. VIP is listed as a stock on the NYSE.

BRIC investing doesn't have to be complicated, and we've got more info on Russia...